Turkey’s current account deficit resumes decline in July thanks to falling imports

By bne IntelliNews September 9, 2016

Turkish current account deficit shrank 17% y/y to $2.6bn in July, the central bank said on September 9.

Though resuming decline after June's sharp rise, the reading was still above market expectations for a deficit of $2.4bn, according to a Reuters survey. The June deficit has snapped a 10-month declining trend. The main culprits were declining trade deficit as a result of the relatively higher decline in imports and also huge increase in unmeasurable inflows. Tourism revenues was also significantly down due to the failed coup attempt. Turkey’s rapprochement with Russia will bear its fruits only in a longer term as domestic security risks continue to keep foreign holidaymakers away from the country.

Over the first seven months of 2016, Turkey's current account gap was down 13% y/y to $21.7bn, while the 12-month accumulative deficit also declined to $28.9bn in July from $29.5bn in the previous month.

Data from the central bank showed exports decreased 13% y/y to $10.4bn in July, while imports were down by a higher 21% y/y to $14.2bn, resulting in a foreign trade gap of $3.7bn, a 37% y/y decline. Probably this year the current account deficit will flatline on an annual basis, maybe even be slightly lower, as a reflection of oil prices coming in flat or lower and some slowing in the domestic economy, Tim Ash from Nomura Securities said on September 9 in an e-mailed comment.

On the financing side; net tourism revenues plunged by 46% y/y to $1.46bn in July. The continued decline in Turkey's tourism revenues is expected to curtail improvements in the current account balance, employment levels and growth, the central bank said on August 31.

Net foreign direct investment inflows registered a 79% y/y decline, falling to $717mn in the month and net portfolio investment inflows amounted to $297mn versus and outflow of $2.47bn a year ago.

Inflows under net error and omission item jumped by 388% y/y in July to $2.09bn. Huge inflows under net error and omissions item was probably due to some of the locals buying of Turkish lira during the post-coup period, amid patriotic fervor, according to Ash.

A recent survey by Reuters showed that economists expect the current account deficit to reach $33.9bn at the end of the year, well above the government’s target of $28.6bn (or 3.9% of GDP). Last year Turkey’s current account gap stood at $32.2bn. 

Fitch forecasts the current account deficit to bottom at 4.3% of GDP in 2016, before rising to close to 6% of GDP by 2018. The current account deficit has continued to narrow due to the lagged impact of lower oil prices on the import bill, despite the drop in tourism revenues, Fitch said on August 19 when it downgraded Turkey’s outlook to negative from stable, affirming the long-term foreign and local currency issuer default ratings (IDR) at 'BBB-', the lowest investment grade.

The World Bank sees Turkey’s current account deficit to come at 4.1% of GDP this year.

Economists surveyed by the central bank in August think that the current account gap will reach $33.2bn at the end of this year, versus a forecast of $32.8bn in July. The survey suggests that economists expect some deterioration in the current account deficit in the second half of the year.

Turkey's Balance of Payments (January-July)
($ mn) 2015 2016 y/y
CURRENT ACCOUNT  (25,011)  (21,701) -13%
 Goods, Services and Primary Income  (25,649)  (22,643) -12%
 Goods and Services  (19,620)  (17,535) -11%
      foreign trade balance  (31,291)  (24,057) -23%
      exports  89,304  85,809 -4%
      imports  120,595  109,866 -9%
FINANCIAL ACCOUNT  (16,012)  (18,216) 14%
 Net FDI  (7,720)  (2,989) -61%
      Net acquisition of financial assets  2,800  1,833 -35%
      Net incurrence of liabilities  10,520  4,822 -54%
 Net Portfolio Investment  7,104  (9,653) -
      Net acquisition of financial assets  3,405  (382) -
      Net incurrence of liabilities  (3,699)  9,271 -
NET ERRORS AND OMISSIONS  9,032  3,459 -62%
Source: tcmb

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